Rick Haglund: Want to stop long-term economic damage from COVID-19? Beef up federal spending.

April 19, 2020 9:31 am

U.S. Capitol | Susan J. Demas

More than 1 million Michigan workers — about 20% of the state’s labor force — have filed for unemployment in the past month as public health restrictions enacted to end the coronavirus pandemic have brought the state’s economy to a virtual standstill.

Forget about the Great Recession, when the state’s jobless rate topped out at 14.4% in 2009. A University of Michigan forecast earlier this month predicted that state unemployment will hit 23% in the current three-month period.

That’s a level of joblessness almost none of us have ever seen. The last time unemployment climbed to such a height was in the Great Depression of the 1930s, when the U.S. rate reached 24.9%.

And the number of Michigan payroll jobs, reported in a separate monthly survey of employers, will likely fall by nearly 30% in April from the first quarter of this year, according to the U of M forecast.

The U of M economists called the statistics “jaw-dropping,” but said jobs could start to return fairly soon if current social distancing and other measures slow the number of coronavirus cases.

U of M is forecasting that Michigan’s jobless rate will fall to 9% in the third quarter of this year and continue to decline to about 5% by the end of 2022, if the economy begins to reopen by early June and there is no second wave of COVID-19 cases.

The U of M economists acknowledged their forecast could prove optimistic. Much depends on the level of testing and contact tracing performed, and a widely available vaccine.

But the economic damage from the pandemic could linger in Michigan for a decade or more if state and local policymakers don’t make the right moves, experts say. Such measures will require hundreds of billions of dollars more in federal assistance.

“The damage done to local economics and local communities from a lengthy public health and economic disaster is not something you easily bounce back from,” said Tim Bartik, senior economist at the Upjohn Institute for Employment Research.

Michigan’s highly cyclical manufacturing economy, dominated by the outsize-wealth-producing auto industry, puts the state’s economy in the high-risk category from lasting pandemic-induced damage, Bartik said.

U of M forecasts U.S. auto sales will fall from a seasonally adjusted annual rate (SAAR) of 16.7 million cars and trucks in the fourth quarter of 2019 to a SAAR of just 7.67 million vehicles in the current quarter.

Sales are expected to bounce back to an annualized rate of 16.3 million vehicles in the third quarter of this year, but fall again to 14.4 million vehicles by early next year. Much of the losses will be in high-profit pickups and SUVs built by Detroit automakers.

Michigan also is highly dependent on tourism, which has been one of the hardest-hit industries in the pandemic because of widespread stay-home orders.

And if past trends hold true, it could take Michigan years to recover from what is likely to be a deep recession.

While elected officials bragged about Michigan’s comeback from the Great Recession, the state has almost 240,000 fewer payroll jobs now than it had at its previous peak in 2000.

“Some may assume that the areas hardest hit from a recession also bounce back the most,” Bartik and several others wrote in a recent Brookings Institution report. “However, prior studies show this does not appear to be the case. As several of us have written, rapid recoveries among regions no longer seem wired into our economy.”

State and local governments must take a variety of actions soon in order to prepare for a stronger economic future, Bartik said.

Unemployed workers, who can lose skills and suffer from substance abuse, lack of confidence, family breakups and other social ills, will need retraining and other assistance to become reemployed.

Already-strapped local governments will need more financial assistance to invest in schools, roads, parks and other amenities that will keep their communities economically attractive.

“Those state and local areas that do a better job of mobilizing the needed resources now will, I predict, have significantly higher per capita incomes even 10 or 20 years from now,” Bartik said.

The federal CARES Act has already authorized an unprecedented $2 trillion in spending for workers, businesses, and state and local governments. About $350 billion of that, the so-called Paycheck Protection Program, has gone to small businesses that keep workers employed through the end of June.

But the small business program already has run out of money. U of M economists say it’s essential to replenish the fund and provide further aid to state and local governments that are struggling to balance hard-hit budgets.

“States and municipalities will need hundreds of billions of dollars to fill the revenue holes resulting from the sharp contraction in economic activity and the business tax cuts contained in the CARES Act,” they said.

Bartik and other economists in March put the figure for additional local government aid at $500 billion and said aid should target the hardest hit areas of the economy.

On Monday, 180 groups, including the Michigan League for Public Policy, urged Congress to approve an unrestricted $500 billion for state and local governments.

“It will take several months to get an accurate picture of the economic damage caused by the pandemic,” the U of M economists wrote. “Nonetheless, the dramatic events of the past several weeks and the decisions taken during this time are likely to shape the economy and society for the next decade or longer.” 

Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our web site. Please see our republishing guidelines for use of photos and graphics.

Rick Haglund
Rick Haglund

Rick Haglund writes the "Micheconomy" column for the Michigan Advance. He's a former reporter and business columnist for Booth Newspapers, now the MLive Media Group, with extensive experience covering Michigan’s economy and the auto industry. He now works as a freelance writer based in Southeast Michigan.